Corporate Speech and Corporate Purposes

Here’s one argument I’ve heard with regard to Citizens United, most recently on this thread but also from others: Once upon a time, corporations were seen as having to announce a specific set of purposes in their charters — e.g., to make money by selling cheese — and couldn’t go outside those purposes. If only that rule were reinstated, that would be a constitutional way of avoiding Citizens United, because corporate speech supporting or opposing candidates is outside those purposes.

But I don’t think that will work (even setting aside the substantial practical economic problems that it will cause, given that the flexibility to enter into new lines of business is often vital to corporations, especially when they face international competition). There are basically two variants of this proposal:

1. One variant of the proposal would be for states to issue corporate charters that expressly forbid corporations from speaking about political candidates (or ballot measures or what have you). But I think that would run into the same Citizens United problem. A state has no obligation to grant a corporate charter; but I don’t think it can limit the charter to exclude political advocacy any more than it can tell newspapers, “if you want to use the corporate form, you can’t editorialize for or against candidates,” tell churches, “if you want to organize yourselves as corporations, you can’t proselytize,” tell medical establishments, “if you want to organize yourselves as corporations, you can’t perform abortions,” or tell businesses, “if you want to organize yourselves as corporations, you can’t manufacture or sell guns.”

2. Another variant would be to require that corporations list particular purposes, and then only spend investor money on things that seriously advance those purposes — likely by replacing the “business judgment” rule, which leaves corporations lots of latitude to decide how to spend money, and substituting a tighter rule. In that situation, it’s possible that corporations could then be limited in, say, contributing to a local charity (unless they can show that this really will produce goodwill) or backing an ideological cause when it’s really just the pet cause of the managers (again, unless they can show that this really will help the corporation).

But, oddly enough, any such rule would leave corporations entirely free to do what critics of Citizens United and First Nat’l Bank of Boston v. Bellotti most dislike: speak out in favor of or against candidates or ballot measures, when such speech advances the corporation’s bottom line. After all, if some regulation hurts the corporation’s bottom line, trying to get the regulation repealed (whether through a ballot measure, through lobbying, or through the election of a candidate who supports repeal) is entirely within the corporation’s purpose of benefiting its shareholders. Likewise, of course, for getting regulations enacted. So even a corporation that is rigidly required to serve its purpose of “making money for shareholders by making and selling cheese” would still be free to speak out in favor of pro-cheese candidates, or pro-tort-law-defendant candidates, or pro-employer candidates, or pro-low-tax candidates.

If there is something wrong with corporations spending money to back or oppose candidates or ballot measures, it is not that the corporations generally aren’t truly serving the interests of shareholders, or that they generally are going beyond their purpose of making money in this or that line of business. The objection to such spending is generally that it will be too good at helping the corporation make money: whether by corrupting the candidate, or simply by electing candidates who are already ideologically disposed to support the corporation’s preferences, the corporation will get more financial benefit than it ought to, at the expense of consumers, taxpayers, competitors, and so on.

Those corruption / equality / economic rent-seeking arguments are interesting arguments, which have been amply discussed elsewhere, and which I don’t want to get into here. But I don’t see any force to the argument that the political spending is somehow outside what should be the corporation’s legitimate purpose of making money in some particular line of business. Most of the time, the political spending is all about promoting the corporation’s making money in that very line of business, and requiring the corporation to state its limited purposes in its charter wouldn’t do anything to stop such spending.